ABSTRACT
Performance evaluation of public institutions in Korea consists of quantitative evaluation and qualitative evaluation. Target assignment (deviation) evaluation method is most widely used for quantitative evaluation, which basically calculates a five-year standard deviation of a given quantitative indicator and grants full score for performance improvement in the excess of one or two standard deviations above last year’s performance. However, neither the theoretical reasoning for such target assignment (deviation) evaluation method nor the objective of such evaluation method has been clearly discussed. This chapter shows that from the perspective of ex-post evaluation, target assignment (deviation) evaluation method is most consistent with the theory statistically examining whether the institution exerted more effort with respective to short-term performance than last year. Also, from the perspective of ex-ante incentive, it was found that target assignment (deviation) evaluation method is consistent with the direction of optimal performance contract system under the assumption that the institution is risk averse and the participation constraint is satisfied with an equality.
